DocuSign's IPO and market cap prediction

DocuSign is one of the very few SaaS lean startups whose product/service I found having a huge impact. The company, however, is very old. It's founded in 2003 and the founder Thomas Gonsner, while still on the board, holds only 1.5% pre-IPO now.

Even big investors like KPCB seems to be holding nothing based on the declaration of the ownership by its representative board member Mary Meeker. Many shareholders seem to have sold their shares in the flurry of sales in the secondary market during 2016~2017, mostly to Founders Circle Capital.

The current CEO of DocuSign is a professional operational person, formerly Operating Partner at the famed PE group Advant International. On paper he seemed to have become CEO in early 2017 specifically to fine-tune the numbers so that the company can go IPO. With an annual salary merely a tad north of $300k, he's slated to make $60M out of stocks if priced at the last round (equivalent to $3B valuation).

But will DocuSign IPOed at a market cap at their last-round valuation of $3B?

To get a quick feel, I found that DocuSign's main numbers (see above) are eerily similar to that of Box in fiscal year 2017 (both ending on 1/31) - whether it's revenue, growth, gross margin, S&M expenses or even operating cash flow. Knowing that DocuSign and Box share the same board member, Rory O'Driscoll of Scale Venture Partners, since 2010, it's hard not to make any connections here.

If that's the case, Box could be a great 1:1 comp for valuing DocuSign. As of 2018/3/30, Box's market cap was $2.8B. It had paid down its debt to reduce it to a mere double-digit million level so EV is not too far. DocuSign shows no significant debt on its balance sheet either. Hence we could conjecture that DocuSign is worth also more or less $2.8B?

Not so fast. In its S-1 form, DocuSign conspicuously did not disclose its revenue in 2018F (2017/2/1~2018/1/31), citing JOBS act. Even if they don't have audited accounts ready yet, usually a company filing for IPO will disclose quarterly results or even non-audited results. This missing is really suspicious.

I would venture to guess that the growth figure in 2018F is not that good. If this is true, the market cap of DocuSign cannot be as much as Box. I would venture to guess that it'd be around $2B~$2.5B on the first day. We'll see how it goes.

Note that, regardless of the IPO market cap, the future of DocuSign has a lot of potential. This is indeed a huge market. The main question is mostly defensibility - as there's no inherent network effect in on-line contracts. However, DocuSign's brand is strong and in the world of contracts, it's about trust. This should help.

Also one cannot be sure if non-founder management team and employees would be as motivated to go after growth. I would argue otherwise. Since the company has practically underperformed its potential so far, compared to some pre-IPO high-risers such as Snap and Dropbox, its employees have a lot more upside in the future given that the IPO price now won't be that high.

Also, one only needs to take a look at PayPal's growth in the past 15 years to know that one does not necessarily need to be a startup to motivate employees and stimulate value creation, as long as one is in a healthy good business without all the hypes that drive up valuation early on.

It works! ~ On Spotify's direct listing

False application of a stochastic view